NOVEMBER 16 2017

Fatih Karahan, Sean Mihaljevich, Laura Pilossoph, NY FED: Understanding Permanent and Temporary Income Shocks. Many labor economists have been interested in various shocks to earnings. How big are the more permanent shocks to earnings? How large are they relative to those that are temporary in nature? What are the sources of these shocks? Economists have estimated that in the early 1990s wage gains from job changes account for at least a third of early-career wage growth. Our results corroborate this finding: The strongest effect on permanent earnings comes from employer changes, with making one job switch erasing the negative scars of two nonemployment spells.

Sigridur Benediktsdottir, Gauti B. Eggertsson, Eggert Torarinsson NBER: The Rise, the Fall, and the Resurrection of Iceland. This paper documents how the Icelandic banking system grew from 100 percent of GDP in 1998 to 9 times GDP in 2008 when it failed. We estimate the output costs of the crisis, which was about average relative to the 147 banking crisis documented Laeven and Valencia (2012) and the 100 banking crisis documented by Reinhart and Rogoff (2014). Our computation of the governments direct costs, reveals that the recently concluded negotiation with foreign creditors may leave the Icelandic government in net surplus as a consequence of the crisis, although there is still some uncertainty about the ultimate cost and our benchmark estimate is a cost corresponding to 5 percent of GDP.

Enrico Moretti, Daniel J. Wilson, Microeconomic Insights: Where star scientists choose to locate: the impact of US state taxes. Our empirical analysis uncovers large effects of personal and business taxes on star scientists’ migration patterns. The probability of moving from an origin state to a destination state increases when the ‘net-of-tax rate’ (after-tax income) in the latter increases relative to the former.

Annette Alstadsæter, Niels Johannesen, Gabriel Zucman, NBER: Who Owns the Wealth in Tax Havens? Macro Evidence and Implications for Global Inequality. Drawing on newly published macroeconomic statistics, this paper estimates the amount of household wealth owned by each country in offshore tax havens. The equivalent of 10% of world GDP is held in tax havens globally, but this average masks a great deal of heterogeneity—from a few percent of GDP in Scandinavia, to about 15% in Continental Europe, and 60% in Gulf countries and some Latin American economies. We use these estimates to construct revised series of top wealth shares in ten countries, which account for close to half of world GDP. Because offshore wealth is very concentrated at the top, accounting for it increases the top 0.01% wealth share substantially in Europe, even in countries that do not use tax havens extensively. It has considerable effects in Russia, where the vast majority of wealth at the top is held offshore. These results highlight the importance of looking beyond tax and survey data to study wealth accumulation among the very rich in a globalized world.

Uri Gneezy et al., NBER: Measuring Success in Education: The Role of Effort on the Test Itself. Tests measuring and comparing educational achievement are an important policy tool. We experimentally show that offering students extrinsic incentives to put forth effort on such achievement tests has differential effects across cultures. Offering incentives to U.S. students, who generally perform poorly on assessments, improved performance substantially. In contrast, Shanghai students, who are top performers on assessments, were not affected by incentives. Our findings suggest that in the absence of extrinsic incentives, ranking countries based on low-stakes assessments is problematic because test scores reflect differences in intrinsic motivation to perform well on the test itself, and not just differences in ability.

Sarah Kuypers, Ive Marx, IZA: The Truly Vulnerable: Integrating Wealth into the Measurement of Poverty and Social Policy Effectiveness. This paper shows that real and financial assets can matter greatly when making assessments of who is poor and financially vulnerable. We introduce the concept of triple precariousness, afflicting households that not only have low income but also very low or non-existent assets to draw on for consumption needs, especially liquid assets. We analyse whether these households – whom we might call the truly vulnerable – have different characteristics from those that we identify as poor or needy on the basis of pure income based metrics. In an analysis for Belgium drawing on HFCS data, we show that households with a reference person that is young, unemployed, low educated, migrant, parent of dependent children, and above all a tenant are especially vulnerable in terms of their financial situation. By contrast, our assessment of the extent and depth of financial need among the elderly – a segment of society that is at a relatively high risk of income poverty – also changes. A substantial share of income poor elderly households own significant assets. We draw out some tentative consequences of these findings for anti-poverty and redistributive policies.

Dani Rodrik, Project Syndicate: How to Combat Populist Demagogues. We will never know whether greater honesty on the part of mainstream politicians and technocrats would have spared us the rise of nativist demagogues like Donald Trump in the US or Marine Le Pen in France. What is clear is that lack of candor in the past has come at a steep price.

Chris Thompson, Boon Mian Teo, PHYS ORG: Can you make a 10-year malt whisky in weeks? The chemistry says yes. So the chemistry of fast liquor is effectively sound, but how does it taste? Research at the Food Safety and Measurement Facility at the University of California, Davis has mapped the "chemical fingerprint" of 60 American whiskies. This study identified between 30 and 50 specific compounds that are responsible for differentiating the taste of one drop from another. In the case of Lost Spirits, they have published forensic data showing a favourable comparison to a 33-year old sample. More to the point, their Reactor Aged Islay Whisky recently won the coveted "Liquid Gold" standard.